Shares of big banks have been on a tear since mid-2017 as investors began to anticipate a better business environment thanks to an improving global economy and business-friendly policies from Washington.

But—and there’s always a but with bank earnings, it seems—fourth-quarter earnings season started with a slog, and that’s likely to continue.

For the quarter, most banks will be recording big, one-time charges that stem from the tax overhaul, as MarketWatch’s Francine McKenna has reported. (For a sense of just how “muddied” earnings will be, J.P. Morgan estimates per-share losses at Citigroup
C, +0.71%
of $6.07 because of the tax changes, versus per-share earnings of $1.22 with the tax hit stripped out.)

“We expect investors to look through these one-time items and focus on core results,” said Jason Goldberg, Barclays’ bank analyst team leader.

Even better, KBW analyst Brian Kleinhanzl says, it’s possible that Wall Street hasn’t fully priced in the full impact of the tax cuts. “When I look out across consensus estimates I don’t think it’s fully incorporated,” Kleinhanzl said in an interview. “A lot of it is priced in, but there could be a little more upside.”

But banks’ business fundamentals aren’t going to light any fires, and investors will face another quarter of determining whether the same promise that’s been made for years now—stronger economic growth, a brisker pace of lending, less regulation, and a better spread between interest rates—is truly right around the corner, or if they should expect more of the same.

The important themes for the quarter, wrote J.P. Morgan’s Vivek Juneja, include a benefit from big share buybacks, offset by loan growth that’s “weak,” net interest margins that are “flattish,” a “moderate increase” in investment banking fees, and trading revenues that are “weak.”

Still, Goldberg thinks that once the final quarter of 2017 is in the rearview mirror, 2018 will be “constructive” with stronger growth in both loans and net interest margins, as well as a supportive backdrop for buying back shares.

Kleinhanzl agrees. “Tax reform is just one piece of it. There’s further potential for deregulation, it’s just going to build over the course of the year,” he told MarketWatch. “It’s a compounding effect across multiple areas that’s going to cause the group to rally.”

That said, Kleinhanzl thinks it’s possible that bank management will keep their cards close during earnings calls this month, with so much uncertainty about how the tax changes will impact operations. As he put it, “People are expecting a lot of good news but we may not get a lot of news at all.”

“We are skeptical of meaningful re-acceleration in industrywide loan growth,” said UBS analysts in a Jan. 4 note. They forecast lending growth of 5.9% for Citigroup and 0.1% for Bank of America Corp.
BAC, -0.19%
which report Tuesday and Wednesday, respectively. That will be driven by commercial real estate, Juneja noted. In contrast, buoyant consumers and a blowout Christmas shopping season are boosting credit card loans—though other consumer loan types, like autos, are growing more slowly.

Net interest margins

To be profitable, banks need a bigger spread between short-term interest rates — what they pay for deposits — and long-term rates, which they receive for lending. Rates — and the spread between them — became depressed in the wake of the financial crisis. When the “yield curve” steepens, it’s because investors expect faster growth and stronger inflation.

Still, that won’t be much in evidence in fourth-quarter earnings. UBS forecasts net interest margins of 2.71% for Citigroup and 2.37% for Bank of America—essentially flat compared with the third quarter, though up nearly 20 basis points compared with a year ago.

Trading

This will be a tough quarter for banks’ trading businesses, not just because volatility remained so low during the quarter, but also because the fourth quarter of last year, when the upset presidential election caused a flurry of activity, will be so hard to match.

Barclays’ Goldberg expects a 15-20% annual decline in total trading revenues. Stock trading overall will outpace that in fixed income, commodities and currencies, he said.

Investment banking

Juneja has penciled in year-over-year increases in investment banking fees of 1% for Bank of America, and 6% for Citigroup. That’s driven by strong equity capital markets activity, but a decline in mergers and acquisitions.

Earnings estimates for the coming quarter

Analysts surveyed by FactSet expect per-share earnings of $1.20 for Citigroup, up from $1.14 a year ago. That’s a bit lower than Estimize, which forecasts EPS of $1.25. FactSet’s revenue consensus is for $17.3 billion, just above the $17 billion booked a year ago, and Estimize’s consensus is for $17.4 billion.

FactSet analysts expect earnings per share of 45 cents for Bank of America, compared with 40 cents last year. Revenues of $21.5 billion are expected to top the $20 billion booked a year ago. Estimize’s forecast is for 47 cents in per-share earnings and for $21.3 billion of revenues.

Stock performance

Over the past 12 months, shares of Citigroup have risen 26%, and shares of Bank of America are up 33.2% gain over that period. Both dwarf the 21% gain in the S&P 500 index
SPX, -0.55%

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.